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Stefan Leiderer et al. The typical MTEF process consists of six key steps: 1. Development of Macroeconomic/Fiscal Framework - Macroeconomic model that projects revenues and expenditure in the medium term (multi-year) 2. Development of Sectoral Programmes - Agreement on sector objectives, outputs, and activities - Review and development of programmes and sub-programmes - Programme cost estimation 3. Development of Sectoral Expenditure Frameworks - Analysis of inter- and intrasectoral trade-offs - Consensus-building on strategic resource allocation 4. Definition of Sector Resource Allocations - Setting medium-term sector budget ceilings (cabinet approval) 5. Preparation of Sectoral Budgets - Medium-term sectoral programmes based on budget ceilings 6. Final Political Approval - Presentation of budget estimates to cabinet and Parliament for approval Source: World Bank (1998, 48); Le Houerou / Taliercio (2002, 3) Budget formulation As seen in Box 3, the next step in the MTEF and the final one in the upstream process of the budget cycle consists in the actual budget formulation. This step begins with the government outlining the annual budget based on me- 32 German Development Institute
Public Financial Management for PRSP Implementation in Malawi dium expenditure plans and the available resource envelope. Budget formulation consists in allocating available resources for different purposes and to different government institutions and spending agencies. Ideally, the budget provides information about all public revenues and expenditures, including external assistance and debt. The process of resource allocation is, however, essentially a political rather than a technical task. The overall resource envelope, defined by the Ministry of Finance and based on the macro-economic forecast and MTEF, provides the basis on which sector ministries should prepare their budget bids for the following year. Usually, the ministry of finance announces indicative ceilings for each line ministry or spending agency. However, these ceilings are contestable in subsequent budget discussions. Each ministry or public agency submits a budget outline to the Ministry of Finance, reflecting the sector priority expenditure programmes and justifying the overall level of the bid. The Ministry of Finance has the task to reconcile the budget proposals of the different ministries and public spending agencies with the overall resource envelope available and the national policy priorities. After cabinet approval, the budget is then presented and debated in Parliament, and – once it is approved by Parliament – is published together with the detailed estimates, setting out expenditures by MDAs in whatever detail the procedures prescribe (Foster / Fozzard 2000, 16). Different budget classifications can be used to organise the budget, each having its advantages and disadvantages. Often governmental institutions use a mix of different budget classifications, e.g. line item classification within an activity-based budget. Box 4 outlines the most common types of classifications. Box 4: Budget classifications Line item classification: structures expenditures according to objects or “line items” (e.g. salaries, travel allowances, office material); strengths: relative simplicity, lack of ambiguity, easy control of expenditures, detailed; weaknesses: no indication of why money was spent, nor whether spending programmes were effective and efficient. Programme or activity-based classification: structures expenditures according to programmes - public policy objectives along with a set of activities necessary to attain them. The programmes may cross departmental responsibilities. German Development Institute 33
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Page 5 and 6: Studies Deutsches Institut für Ent
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Page 10 and 11: 4 The Case of Malawi 44 4.1 Why Mal
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Publications of the German Developm
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Discussion Paper 16/2007 Schirm, St
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